Financial Literacy - Final Exam

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Multiple Choice
Identify the choice that best completes the statement or answers the question.

The homeowner can’t make payments on the mortgage and the lender takes the property:

a.	Delinquency	c.	Repossession
b.	Surrender of collateral	d.	Foreclosure

Property that is personal and that can be easily moved is categorized as

a.	business property.	c.	personal property.
b.	none of the above	d.	real property.

The main difference between debit and credit cards is:

a.	A debit card requires that you have the cash available in the account; a credit card doesn’t	c.	A credit card has the Visa or MasterCard logo; a debit card doesn’t
b.	A debit card does not offer the same protections as a credit card.	d.	A credit card requires that you have the cash available in the account; a debit card doesn’t

Which is not true about investments:

a.	Always invest only for tax savings purposes.	c.	Never invest using borrowed money.
b.	Never invest only for tax savings purposes.	d.	Diversification will help lower the risk.

Your piece of ownership in a company is called:

a.	Dividend	c.	Profit
b.	Portion	d.	Share of stock

The primary difference between the Roth IRA and a traditional IRA is:

a.	A traditional IRA grows tax free; the Roth IRA doesn’t.	c.	The Roth IRA grows tax free; the traditional IRA doesn’t.
b.	Contributions to your Roth are pre-tax; contributions to a traditional IRA are after-tax.	d.	The IRA allows a contribution amount of $5,500 for non-income producing spouses; the Roth IRA doesn’t.

Which type of insurance is provided by employer’s for work-related illnesses?

a.	long-term disability	c.	short-term disability
b.	none of the above	d.	worker’s compensation

The key to building wealth is:

a.	Staying debt free	c.	Fixed rate, 15 year mortgages
b.	A good education and income	d.	Driving reliable used cars

An overdue payment is called:

a.	Delinquency	c.	Repossession
b.	Foreclosure	d.	Surrender of collateral

10.

Which is an advantage of taking a 15-year mortgage vs. a 30-year mortgage?

a.	There is a tax advantage with a 15-year mortgage.	c.	The monthly payments are slightly higher.
b.	The monthly payments are lower.	d.	The difference you save in interest is significant.

11.

Which of the following is true about using credit:

a.	When using credit, one spends more.	c.	Using credit neurologically registers as pain.
b.	It’s the same as using cash.	d.	When using credit, one spends less.

12.

Which of not a precaution to prevent your identity from being stolen?

a.	Never buy anything on the internet if you are using a public internet cafe.	c.	Shred all documents that contain account information.
b.	Create passwords that have a combination of letters, numbers and characters.	d.	Keep you Social Security card on you at all times.

13.

What is a key feature in computing your FICO score?

a.	Debt	c.	How much money you have in savings
b.	Your annual gross income	d.	All of the above

14.

What is true about investing in single stocks?

a.	The risk is the same whether you invest in mutual funds or stocks.	c.	There is a low degree of risk.
b.	If the stock is from your employer, the risk is lower.	d.	There is a high degree of risk.

15.

Julie works full-time and is finishing college so she can be a teacher. What housing option would be best for her based on this information?

Buy

Rent

16.

What is the problem with using credit cards if you pay your balance off each month?

a.	This is the only responsible used of credit.	c.	Both b and c
b.	You are more apt to buy on impulse rather than thinking about a purchase	d.	You are spending an average of 12-18% more when you use a credit card.

17.

Gregg travels out of town frequently for his sales job. He makes a good salary and has saved over $20,000. His company may transfer him to a new sales territory within the next two years. What housing option would be best for him based on this information?

Buy

Rent

18.

If your company does not provide any type of 401(k) match, what is the best investment option?

a.	Invest the maximum amount allowed in a Roth IRA, and then go back and fund the 401(k) to complete 15% of your income.	c.	Contribute nothing into your 401(k), if there is no match.
b.	Find another job with a company that offers a retirement plan.	d.	Fully fund the 401(k) up to 15% of your income.

19.

What does a realtor have available to them that the public doesn’t?

a.	MLS	c.	All of the above
b.	Land surveys	d.	Contacts

20.

Who has the power to levy taxes?

a.	Congress	c.	the President
b.	the Internal Revenue Service	d.	the Supreme Court

21.

How much money should Lisa and Joe have in their emergency fund if they have a $3,000 credit card bill and mortgage?

a.	$1,000	c.	10% of their credit card balance
b.	3-6 months of expenses	d.	No emergency fund until the credit card is paid off

22.

What is the amount of loss you must pay before the insurance company will pay the rest?

a.	premium	c.	deductible
b.	coverage limit	d.	risk

23.

In which case are you most likely to get sued if you are behind in paying bills?

a.	If you call and settle the debt	c.	If you are making no payments
b.	If you have stopped all contact	d.	Both a and b

24.

Why should you avoid lending money?

a.	The person borrowing the money is in bondage to you	d.	The relationship changes
b.	Both a and b	e.	Often the relationship ends completely
c.	All of the above

25.

When you are finished comparing your bank statement to your account register, what do you often discover?

a.	Both a and b	c.	The balance is negative.
b.	The balance on each is always the same.	d.	The balance on each is different due to outstanding checks.

26.

Which is an advantage of a Roth IRA?

a.	Offers more choices	c.	Offers more flexibility
b.	All of the above	d.	Higher bracket at retirement

27.

When seeking a financial counselor to help you with your investments, always go with:

a.	A financial counselor with the heart of a teacher who explains everything to you.	c.	A financial counselor who is sophisticated and uses all of the right vocabulary.
b.	A close family member or friend because you will be helping each other out.	d.	A financial counselor who has at least five years experience.

28.

Which of the following is a risk to consider when investing?

a.	Inflation	c.	Your money is not liquid
b.	You could lose all of your money	d.	All of the above

29.

Who completes Form W-4?

a.	employer	c.	IRS
b.	parents	d.	employee

30.

An employer withholds taxes from an employee’s ___.

a.	lottery winnings	c.	interest and dividends
b.	holiday fruit basket and turkey	d.	salaries and wages

31.

Which is a danger of co-signing a loan?

a.	You know them and trust them so co-signing is not dangerous.	c.	If the person doesn’t pay, you become responsible for the debt.
b.	The bank wouldn’t give that person a loan without your help.	d.	If the person doesn’t pay, you are responsible for the debt.

32.

What is the best way to buy a car?

a.	0% financing on new or used	c.	Leasing
b.	Purchase used (two years or older)	d.	Purchase new at the end of the year

33.

Savings is about:

a.	Emotion and contentment	c.	Pride and greed
b.	Making more money and discipline	d.	Contentment and earning more money

34.

Employers use which form to compute the amount of federal income tax withheld?

a.	Form 1040EZ	c.	Form W-2
b.	Form 1040	d.	Form W-4

35.

With the money Erin earned baby-sitting, she bought a book priced at $5.95. She paid a tax of $.36 on the book. What type of tax did she pay?

a.	excise tax	d.	income tax
b.	payroll tax	e.	sales tax
c.	property tax

36.

Which is not at true statement about identity theft?

a.	It is often committed by someone the victim knew personally.	c.	You should always shred documents that have personal informaion on them.
b.	Carrying your Social Security card in your wallet is a safety precaution.	d.	It can happen at restaurants, the mall, or a home mailbox.

37.

Which is not a horrible mortgage option?

a.	ARM	c.	Balloon
b.	Reverse mortgage	d.	Conventional

38.

Which is true about the myth, “I will take out a 30-year mortgage and pay it off early”?

a.	All of the above	c.	Other important things come up and it usually does not get paid off early.
b.	The monthly payment on a 15-year mortgage is significantly more than a 30-year mortgage.	d.	People generally will pay it off early if they set that as a goal.

39.

What is the most sensible way to buy a $4,000 car?

a.	Ask your parents to co-sign a loan at your local credit union.	c.	Shop around for the best interest rate before taking out a $4,000 loan.
b.	Use the sinking fund approach and save $400 a month for ten months.	d.	Put a down payment of $500 and use 90 days same-as-cash to pay the balance.

40.

Which of the following is not a factor that affects property insurance cost?

a.	gender	c.	coverage amount
b.	age of structure	d.	location

41.

For most people, federal income tax is collected ___.

a.	by the Social Security Administration	c.	once every three months
b.	on a pay-as-you-go basis	d.	yearly

42.

Which is true about the marketing of credit cards to teenagers?

a.	Brand loyalty to your first card is incredible, so credit card companies work hard to become the first issuer.	c.	Teens are the number one target of credit card companies across America.
b.	Colleges are losing more students to credit card debt problems than to academic failure.	d.	All of the above

43.

Long term care insurance is for:

a.	Assisted living facilities	c.	Nursing homes
b.	All of the above	d.	In-home care

44.

Which of the following is a step out of debt?

a.	Quit borrowing money	c.	Sell something
b.	Using the debt snowball	d.	All of the above

45.

The Wage and Tax Statement is also known as ___.

a.	Form W-2	c.	Form 1040EZ
b.	Form W-4	d.	Form 1040

46.

Which of the following is not reported on Form W-2?

a.	Wages, tips, and other compensation	c.	Federal income tax withheld
b.	The number of withholding allowances claimed by the employee on Form $-4	d.	Medicare tax withheld

47.

A good reason to get long-term care insurance is:

a.	69% of people over the age of 65 will require long-term care.	c.	Medicare will not cover any expenses if you were not eligible for Medicare at age 65.
b.	Nursing home care can wipe out your savings.	d.	Both a and b

48.

To reclaim possession of an item because the borrower failed to make payments:

a.	Foreclosure	c.	Surrender of collateral
b.	Delinquency	d.	Repossession

49.

Justin has been working at the same job for five years and recently finished his master’s degree which entitles him to a promotion. He has saved $10,000 in the past six months. What housing option would be best for him based on this information?

Buy

Rent

50.

Which of the following types of automobile insurance covers damage to the vehicle caused by things other than a car accident (ex: theft, hail, or falling tree)?

a.	Comprehensive	c.	Property damage liability
b.	Collision	d.	No-fault

51.

How much money should you have in your emergency fund if you are working on Baby Step 2 (pay off all debt)?

a.	You should not have an emergency fund until all debt is paid	c.	15% of your household income
b.	$500-$1,000, depending on your current income	d.	3-6 months of expenses

52.

Which is not a key to saving money?

a.	Making savings a habit and priority	c.	Discipline
b.	Your income	d.	Focus

53.

If you borrow against your retirement plan, under which conditions must you pay it back?

a.	All of the above	c.	You die
b.	If you leave the company voluntarily	d.	If you are forced to leave the company

54.

Which is not part of the debt snowball?

a.	The minimum payment from a paid off debt goes toward the new payment amount of the next debt.	c.	Pay minimum on all debts except the smallest one.
b.	List you debt from highest interest rate to lowest interest rate.	d.	Put every extra dollar you can on the smallest debt

55.

If you have $3,000 invested in a Roth IRA, what is true about your contribution?

a.	You have maxed out your contribution.	c.	You will pay taxes only on the growth of $3,000.
b.	Both a and b	d.	You have already paid taxes on the money, so it will grow tax free.

56.

What type of insurance covers a person for a specific period of time?

a.	variable life insurance	c.	limited-payment life insurance
b.	term life insurance	d.	cash value insurance (whole)

57.

If you are married, which is true of budgets?

a.	Doing a budget will have no impact on your marriage.	c.	The spouse who is not good with numbers shouldn’t be involved in the budget.
b.	After the first few budgets, the novelty will wear off and arguments will gradually increase.	d.	The first few budgets will result in arguments, but these will decrease over time.

58.

Even though a savings account is fine when you are just beginning to save, why is a money market a better place to keep your emergency fund?

a.	A money market is accessible and generally has check writing privileges if needed.	c.	All of the above.
b.	Typically, money markets average a higher interest rate than a savings account.	d.	A savings account is a bit too easy to access.

59.

The most aggressive mutual funds tend to be from:

a.	Companies that are overseas	c.	All of the above
b.	Companies that are a little younger and growing	d.	Companies that are older and well-established

60.

What is the amount you pay for an insurance policy?

a.	premium	c.	annuity
b.	monthly payment	d.	annual payment

61.

Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends) are __.

a.	property taxes	c.	income taxes
b.	transaction taxes	d.	none of the above

62.

Which factor doesn’t affect your insurance premium?

a.	hair color	c.	age
b.	urban/rural area	d.	marital status

63.

Which of the following is a peril not covered by homeowner’s policy?

a.	fire	c.	parties
b.	theft	d.	smoke

64.

Which of the following is true about the concept of saving?

a.	You will save when you make more money.	c.	Saving must become a priority after all bills are paid.
b.	All of the above	d.	You must pay yourself first.

65.

Which is a reason why people avoid making a budget?

a.	fear of what they may find	c.	all of the above
b.	a budget has been used to abuse them	d.	they never had a budget that really worked

66.

If you are struggling financially and are behind on your bills, what should you budget first?

a.	food	c.	credit card
b.	clothing	d.	gas for the car

67.

Which statement is not true about depreciation?

a.	Depreciation doesn’t matter if you pay for something using cash.	c.	A new car loses 40% of its value in the first four years.
b.	When buying slightly used items, you minimize depreciation.	d.	Depreciation and interest accounts for more than half the annual costs of owning a car.

68.

If you are buying a house outside of a standard subdivision, what should you get?

a.	Mortgage insurance	c.	Home warranty
b.	Land survey	d.	PMI

69.

Under which condition are you not able to make a tax-free withdrawal from your Roth IRA?

a.	Over 59 and a one half years old	c.	First-time home purchase up to $10,000
b.	Death or disability	d.	Career change and temporary drop of income

70.

Which of the following should you avoid buying?

a.	Timeshares	c.	All of the above
b.	A house in the bottom price range of the neighborhood	d.	A house near the water

71.

When buying a home:

a.	Overlook bad landscaping and outdated cosmetic issues.	c.	Put at least 10% down.
b.	Buy in the bottom price range of the neighborhood.	d.	All of the above

72.

Which type of mortgage is the best to take out, particularly if you are going to be moving in five to seven years?

a.	Balloon Mortgage	c.	Fixed 15-year
b.	Fixed 30-year	d.	Adjustable Rate Mortgage

73.

Unearned income includes ___.

a.	tips	c.	interest and dividends
b.	commissions	d.	salaries and wages

74.

A budget is:

a.	all of the above	c.	being proactive with your money
b.	a written financial goal	d.	people telling their money what to do

75.

A collection of money from different investors, which is used to purchase stocks, bonds, or other investments, managed by a fund manager:

a.	Company Stock	c.	Bonds
b.	Annuities	d.	Mutual Funds

76.

Which term is not associated with balancing a checking account?

a.	reconcile	c.	annual income
b.	withdrawal	d.	deposit

77.

Why do ARMs appear to be a good mortgage option?

a.	The bank takes on the risk of higher interest rate.	c.	Both a and c
b.	The initial interest rate is lower; so people are able to buy the house they want.	d.	The loan adjusts to a lower interest rate as time passes.

78.

What of the following is not a reason to save?

a.	Wealth building	c.	Purchases
b.	Emergency fund	d.	Pay off debt

79.

For most people, (excluding students) a fully funded emergency fund will be about:

a.	$10,000-$15,000	c.	$3,000-$5,000
b.	$5,000-$10,000	d.	$1,000

80.

Which of the following will not likely lead to reduced insurance rates?

a.	Driving an older car	c.	Speeding ticket
b.	Good grades	d.	Shopping around

81.

Which of the following is not one of the steps to take if you are a victim of identity theft?

a.	Contact the fraud victim division of each credit bureau.	c.	Pay up to $50 to each account on which a charge was made.
b.	All of the above	d.	File a police report.

82.

If 80% of millionaires are first generation rich, than one can conclude:

a.	All of the above	d.	They started with nothing, made smart decisions, and became millionaires
b.	The other 20% are not millionaires	e.	They fell for the myths that society lives by
c.	Both a and b

83.

Renter’s insurance covers all of the following except?

a.	loss of use of dwelling	c.	theft
b.	loss of personal property	d.	structural damage caused by carelessness

84.

Which of the following should you consider when making a significant purchase?

a.	If you can’t pay cash, don’t buy it	c.	All of the above
b.	Your buying motives	d.	The opportunity cost

85.

What does Baby Step 5 say about saving for your children’s college?

a.	Use pre-paid college tuition	c.	Use insurance or savings bonds
b.	Use a Certificate of Deposit	d.	Use tax-favored plans

86.

If you must take a loan, be sure to:

a.	Get a home warranty	c.	Have a good paying job
b.	Get a fixed rate	d.	Get a survey

87.

Which is true about making purchases with credit cards?

a.	You are more likely to experience the “pain” when purchasing with a credit card.	c.	None of the above
b.	You spend 12-18% less when using a credit card.	d.	You spend 12-18% more when using a credit card.

88.

Which is an example of using financing as a marketing tool?

a.	90 days same-as-cash	c.	No interest for two years
b.	Both a and b	d.	Four-color advertisement in Sunday’s paper

89.

What term refers to the amount of tax that must be paid (total tax bill)?

a.	tax credit	c.	tax liability
b.	tax refund	d.	tax deductions

90.

Which of the following is a good way to save for college?

a.	Life insurance	c.	Pre-paid college tuition
b.	ESA	d.	Savings bonds

91.

Which of the following is not true of a zero-based budget?

a.	If you have extra money left at the end of the month, your budget was successful.	c.	You spend every dollar on paper before the month begins.
b.	Use envelopes for categories in which you tend to overspend.	d.	The money you spend should equal the money you earn.

92.

Which statement best describes a zero-based budget?

a.	A budget that has zero debt payments.	c.	Both a and c
b.	A perfect month where you miss zero payments and save for your retirement.	d.	Income minus outgo equals zero.

93.

The Baby Steps can best be described as:

a.	A series of steps that will work in good times and in bad times	c.	A series of seven sequential steps that help you plan, save and manage money
b.	All of the above	d.	A systematic process for getting out of a financial mess

94.

Which of the following by itself is not a good reason to buy a house?

a.	To avoid paying rent	c.	A mortgage is a tax advantage
b.	It can be a good inflation hedge	d.	Everyone else is

95.

What type of insurance should you buy to protect yourself against a question of ownership?

a.	Home warranty	c.	PMI
b.	Survey	d.	Title

96.

Baby Step 2 is:

a.	Save 15% of income for retirement.	c.	Pay off all debt using the debt snowball.
b.	Take a 15-year vs. 30-year mortgage	d.	A fully funded emergency fund.

97.

Which of the following is not covered under a bankruptcy?

a.	Car loan	c.	Credit card debt
b.	Student loans	d.	Medical bills

98.

Which statement is not true about debt consolidation?

a.	Your lower interest loans also get rolled into the deal so you end up with minimal savings.	c.	You only have one payment to deal with.
b.	Smaller payments equals more time in debt.	d.	You end up saving money because you are getting a lower interest rate.

99.

The KISS rule of investing teaches:

a.	It is normal to have investments you don’t understand as long as you have a broker.	c.	None of the above
b.	Keep things simple and never buy anything you don’t understand.	d.	The more sophisticated the investment, the better.

100.

If a taxpayer disagrees with the IRS about tax liability after an examination or audit, the taxpayer can ask the __ to review the case.

a.	court	c.	state
b.	police	d.	Congress